Mircro 12

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A student​ argues: ​"To maximize profitLOADING...​, a firm should produce the quantity where the difference between marginal revenueLOADING... and marginal cost is the greatest. If a firm produces more than this​ quantity, then the profit made on each additional unit will be​ falling." Part 2 Is the above statement true or​ false?

False. Profit is maximized at the output level where marginal revenue equals marginal cost.

Briefly discuss the difference between these two concepts.

Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries.

If the market demand curve shifts to the​ right, how will a competitive​ firm's level of output​ change?

The firm will increase its​ output, and its profits will increase.

What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market?

Price is equal to both average revenue and marginal revenue.

Which of the following best represents total​ profit?

the shaded rectangle

In​ 2017, Apple reported that since its iTunes App Store had opened in​ 2008, third-party app developers had earned more than​ $60 billion and currently employed 1.4 million people.​ Yet, as​ we've seen, because of intense​ competition, many game developers can only break even on the games they develop. ​Source: Tripp​ Mickle, "Apple's App Store Sales Top​ $28 Billion," Wall Street Journal​, January​ 5, 2017. Part 2 If game companies can only break even on the mobile games they​ develop, in the long​ run, we would expect them to

C. continue to develop mobile games because they can cover all costs of production if they break even.

Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. Part 2 a. If the current equilibrium price in the pencil market is ​$1.60​, what price will Frances​ charge?

$1.60

The figure to the right represents the cost structure for a perfectly competitive wheat farmer with her average total cost​ (ATC) curve and marginal cost​ (MC) curve. Part 2 At what market price will the wheat farmer break​ even? Part 3 The wheat farmer will break even at a price of ​$

$5 per bushel - where MC = ATC

Refer to the graph to the right of the costs for a perfectly competitive firm. Which of the following best represents profit per unit of​ output?

-might be different graph - The distance between points A and B

1. How many inches are in one​ foot? 2. There are __ innings in a typical baseball game. 3. The sun revolves around the earth. 4. 3×​(4+ 1)​=

1. 12 2. nine 3. False 4. 15

A columnist for the Wall Street Journal discussed how some firms were buying existing drilling operations in Canadian oil sands regions. These operations would not be profitable to build from scratch but were profitable to operate given that they were already built​ because, as the columnist​ said: "The key is the distinction between fixed and variable costs. While the fixed investment in new oil sands projects is​ prohibitive, variable costs can be in the low​ $20 range​ (say, ​$21​) per​ barrel." The columnist estimated that the fixed cost of a new oil sands drilling operation could be ​$95 per barrel. At the time the column was​ written, the price of oil was about ​$50 per barrel.

50- 95 - 21 = -66

Suppose an assistant professor of economics is earning a salary of ​$75,000 per year. One day she quits her​ job, sells ​$110,000 worth of bonds that had been earning 5 percent per​ year, and uses the funds to open a bookstore. At the end of the​ year, she shows an accounting profit of ​$87,500 on her income tax return.

7000

​Long-run equilibrium in perfect competition results in

A. allocative efficiency. B. productive efficiency. -both a and b

How does perfect competition lead to allocative and productive​ efficiency? Part 2 Perfect competition leads to allocative and productive efficiency

A. because prices reflect consumer preferences. B. because firms are motivated by profit. -both a/b

Suppose that the market for​ gluten-free spaghetti is in​ long-run equilibrium at a price of​ $3.50 per box and a quantity of 4 million boxes sold per year. Assume that the production of​ gluten-free spaghetti is a​ constant-cost industry. If the demand for​ gluten-free spaghetti increases​ permanently, which of the following combinations of equilibrium price and equilibrium quantity would you expect to see in the long​ run? a. A price of​ $3.50 per box and a quantity of 4 million boxes. b. A price of​ $3.50 per box and a quantity of more than 4 million boxes. c. A price of more than​ $3.50 per box and a quantity of more than 4 million boxes. d. A price of less than​ $3.50 per box and a quantity of less than 4 million boxes.

After demand​ increases, and supply​ increases, the quantity will be more than 4 million​ boxes, but the price will return to its initial level.

Suppose​ that, at the beginning of the​ year, the price of corn is​ $3.80 per bushel and 14 billion bushels are harvested. There are approximately​ 400,000 corn​ farmers, so the average output per farmer is about​ 35,000 bushels.

At the beginning of the​ year, the average corn farmer produced .00025​% of the total corn production. ​

Which of the following best explains why firms​ don't maximize revenue rather than profit?

At the point where revenue is​ maximized, the difference between total revenue and total cost may not be maximized.

What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve?

A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost.

As production of laptop displays​ increases, firms in the industry can now enjoy economies of scale. In the short​ run, makers of laptop displays will​ what?

Be able to earn economic profit.

Why are consumers so powerful in a market​ system?

Because it is​ consumers' demand that influences the market price and dictates what producers will supply in the market.

When are firms likely to enter an​ industry? When are they likely to​ exit?

Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry.

Suppose you read the following item in a newspaper​ article, under the headline ​"Price Gouging Alleged in Pencil​ Market": Consumer advocacy groups charged at a press conference yesterday that there is widespread price gouging in the sale of pencils. They released a study showing that whereas the average retail price of pencils was​ $1.00, the average cost of producing pencils was only​ $0.50. "Pencils can be produced without complicated machinery or highly skilled​ workers, so there is no justification for companies charging a price that is twice what it costs them to produce the product. Pencils are too important in the life of every American for us to tolerate this sort of price gouging any​ longer," said George​ Grommet, chief spokesperson for the consumer groups. The consumer groups advocate passage of a law that would allow companies selling pencils to charge a price no more than 20 percent greater than their average cost of production. Part 2 Which of the following is not likely to happen in the pencil​ market?

Firms will charge a price above marginal cost in the long run.

What will happen in the laptop market in the long​ run?

Firms will enter the market.

Which of the graphs above best depicts an industry in which the typical​ firm's average costs decrease as the industry expands​ production?

Graph on left (downward sloping)

In situation​ 1, the firm should

In situation 1, TC = $(5,000 + 5,000) = $10,000 ATC = $10,000/ 1,000 = $10 Since Price = ATC, firm will break-even. produce​ 1,000 units of output and break even with a price of​ $10.00.

In situation​ 2 , the firm should

In situation 2, TC = $(6,000 + 5,000) = $11,000 AVC = $5,000 / 1,000 = $5 ATC = $11,000/ 1,000 = $11 produce​ 1,000 units of output at a loss since the price is less than the average total cost.

In situation​ 3, the firm should

In situation 3, TC = $(5,000 + 11,000) = $16,000 AVC = $11,000 / 1,000 = $11 ATC = $16,000/ 1,000 = $16 shut down since the price is less than the average variable cost.

A student examines the graph to the right and​ argues, ​"I believe that a firm will want to produce at Q1​, not Q2. At Q1​, the distance between price and marginal cost is the greatest.​ Therefore, at Q1​, the firm will be maximizing its​ profits." Part 2 Is the​ student's argument correct or​ incorrect?

Incorrect. Profits are maximized at the quantity where marginal revenue equals marginal cost.

Is the following statement correct or​ incorrect? ​"According to the model of perfectly competitive markets​, the demand for wheat should be a horizontal line. But this​ can't be​ true: When the price of wheat​ rises, the quantity of wheat demanded​ falls, and when the price of wheat​ falls, the quantity of wheat demanded rises.​ Therefore, the demand for wheat is not a horizontal​ line." Part 2

Incorrect. The commentator is confusing the market demand for wheat with the demand line facing the representative firm.

How can GE best maximize its​ profit?

Increase revenues and cut costs.

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value?

MR​ = MC Slope of TR = Slope of TC -BOTH A and B are true

If next week the equilibrium price of desk lamps drops to​ $30, should Edward shut down​?

No because price is greater than minimum AVC.

Hedrick Smith was a foreign correspondent for the New York Times who lived in the Soviet Union in the​ 1970s, a period when the country had a planned economy rather than a market system. In a book he wrote about everyday life in the Soviet​ Union, Smith made the following observations about shopping in​ Moscow: At first it seemed...that the stores were pretty well stocked. Only as we began to shop in earnest...did the Russian​ consumer's predicament really come through to me.​ First, we needed textbooks for our children...and found that the​ sixth-grade textbooks had run out.... We tried to find ballet shoes for our​ 11-year-old daughter...only to discover that in this land of​ ballerinas, ballet shoes size 8 were unavailable in Moscow.... I tried to find shoes for myself. They were out of anything in my size but sandals or​ flimsy, lightweight shoes that the​ clerk, with one look at​ me, recommended against buying.​ "They won't​ last," he admitted. ​Source: Hedrick​ Smith, The Russians​, New​ York: Ballantine​ Books, 1977, p. 77. Judging by​ Smith's observations, did the Soviet Union achieve allocative efficiency in the production of​ sixth-grade textbooks, ballet​ shoes, and​ men's shoes? Briefly explain.

No, it did not achieve allocative efficiency because the marginal benefit was greater than the marginal cost of production.

By​ 2017, McDonald's had stopped selling Chicken McNuggets and other products made from chickens fed antibiotics. The change increased​ McDonald's costs, but an article in the Wall Street Journal noted that​ "...McDonald's ability to raise its prices is limited because of stiff​ competition." ​Source: David​ Kesmodel, Jacob​ Bunge, and Annie​ Gasparro, "McDonald's to Curb Antibiotics in​ Chicken," Wall Street Journal​, March​ 4, 2015. Does this​ "stiff competition" mean that the demand curve for​ McDonald's Chicken McNuggets is​ horizontal? Briefly explain.

No, the demand curve is not horizontal because Chicken McNuggets are not identical to other chicken products.

​"In a perfectly competitive​ market, in the long run consumers benefit from reductions in​ costs, but firms​ don't." ​Don't firms also benefit from cost reductions because they are able to earn greater​ profits?

No. Because​ short-run profits encourage​ entry, firms earn zero economic profit in the long run.

Which of the following is an expression of profit for a perfectly competitive​ firm? Part 2 Profit for a perfectly competitive firm can be expressed as

Profit=(P×Q)−(ATC×Q)​, where P is​price, Q is​output, and ATC is average total cost.

A perfectly competitive firm is losing money in the short​ run, and its price is less than its average variable cost. In order to minimize its losses in the short​ run, this firm should

Shut down

The financial writer Andrew Tobias has described an incident when he was a student at Harvard Business​ School: Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strategy for the firm. Most of the students spent hours preparing their answers and came to class carrying many sheets of paper with their calculations. When his professor called on him in class for an​ answer, Tobias​ stated, ​"The case said the XYZ Company was in a very competitive industry . . . and the case said that the company had all the business it could​ handle." ​Source: Andrew​ Tobias, The Only Investment Guide​ You'll Ever Need​, San​ Diego: Harcourt,​ 2005, pp.​ 6-8. Part 2 Given this​ information, what price do you think Tobias argued the company should​ charge? (Tobias says the class greeted his answer with​ "thunderous applause.")

The Market price

Can we tell from these observations whether the Soviet Union achieved productive efficiency in the production of​ sixth-grade textbooks, ballet​ shoes, and​ men's shoes? Briefly explain.

The Soviet Union may or may not have achieved productive​ efficiency, depending on average costs.

Refer to the graph to the right of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the​ following?

The firm can sell any amount of output as long as it accepts the market price of​ $7.00.

If a perfectly competitive firm is producing at point A​, in the graph to the​ right, which of the following is​ true?

The firm earns zero economic profit.

Why are firms willing to accept losses in the short run but not in the long​ run?

There are fixed costs in the short run but not in the long run.

In the figure to the​ right, Sacha Gillette reduces her output from 7750 to 5750 dozen eggs when the price falls to ​$2.20. At this price and this output​ level, she is operating at a loss. Part 2 What option does Gillette have in this​ situation?

Try to cut her costs of production to decrease the loss in the short run.

At a price of ​$50 per​ barrel, were the companies buying the existing oil sands operations earning a profit of ​$29 per​ barrel? If​ not, explain what information we would need to calculate their profit

We would need information on the cost of buying the existing operations to determine profits.

The chapter​ states, ​"Firms will supply all those goods that provide consumers with a marginal benefit at least as great as the marginal cost of producing​ them." A student objects to this statement by making the following​ argument: "I doubt that firms will really do this. After​ all, firms are in business to make a​ profit; they​ don't care about what is best for​ consumers." Part 2 After reminding the class that we are assuming a competitive​ market, your professor would most likely give the following reply

While​ it's true that firms​ don't care about consumer​ welfare, they do maximize profits by producing the efficient level of output.

Why do single firms in perfectly competitive markets face horizontal demand​ curves?

With many firms selling an identical​ product, single firms have no effect on market price.

In perfect​ competition, long-run equilibrium occurs when the economic profit is

Zero

A price taker is

a firm that is unable to affect the market price.

Discuss the shape of the​ long-run supply curve in a perfectly competitive market. Part 2 The​ long-run supply curve is

a horizontal line equal to the minimum point on the typical​ firm's average total cost curve.

A buyer or seller that is unable to affect the market price is called

a price taker

Refer to the graphs above. What do you expect to happen in this market as it approaches​ long-run equilibrium?

a shift to the right of the market supply curve as new firms enter

Which of the following terms best describes a state of the economy in which production reflects consumer​ preferences?

allocative efficiency

What is the difference between a​ firm's shutdown point in the short run and its exit point in the long​ run? In the short​ run, a​ firm's shutdown point is the minimum point on the

average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve.

How is the market supply curve derived from the supply curves of individual​ firms? The market supply curve is derived

by horizontally adding the individual​ firms' supply curves.

In the short​ run, the firm should

continue to produce because price is greater than average variable cost.

An article in the Wall Street Journal discussing the financial results for General Electric Co.​ (GE) for the first quarter of 2017 reported​ that, compared with the same quarter in the previous​ year, the​ firm's revenue had fallen from​ $27.94 billion to​ $27.66 billion, while its profit had increased from​ $228 million to​ $653 million. ​Source: Thomas Gryta and Joshua​ Jamerson, "General​ Electric, Still Weighed by​ Energy, Boosts Profit amid Cost Cutting​ Plan," Wall Street​ Journal, April​ 21, 2017. It is possible for profits to increase even if revenue decreases if

costs decrease more than revenue decreases.

The figure to the right represents the cost structure for a perfectly competitive firm with its average total cost​ (ATC) curve, average variable​ (AVC) curve, and marginal cost​ (MC) curve. Part 2 Suppose the market price is ​$16.00 per unit. Will firms enter or exit the industry in the long​ run? Part 3 If market price is ​$16.00​, then firms will enter the market in the long run.

enter

The figure to the right represents the cost structure for a perfectly competitive firm with its average total cost​ (ATC) curve, average variable​ (AVC) curve, and marginal cost​ (MC) curve. Part 2 Suppose the market price is ​$15.00 per unit. Will firms enter or exit the industry in the long​ run? Part 3 If market price is ​$15.00​, then firms will

enter the market in the long run

The figure to the right represents the cost structure for a perfectly competitive firm with its average total cost​ (ATC) curve, average variable​ (AVC) curve, and marginal cost​ (MC) curve. Fixed costs are​ $50.00. Part 2 Suppose the market price is ​$23.00 per unit. Part 3 Characterize the​ firm's profit. Part 4 If the firm produces​ output, then it will

experience losses

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. Part 2 In a perfectly competitive​ market, P​ = MR​ = AR because

firms can sell as much output as they want at the market price.

In a perfectly competitive industry with constant​ costs, the​ long-run supply curve will be

horizontal.

In situation​ 1, the firm should

https://www.chegg.com/homework-help/questions-and-answers/consider-firm-following-three-situations-explain-whether-firm-produce-short-run-shut-short-q24504554

As of​ 2017, the U.S. Department of Agriculture​ (USDA) did not have detailed guidelines for egg farmers to follow before they could claim that the eggs they sell were laid by​ cage-free chickens. Some animal rights activists were pushing for the USDA to enact stricter guidelines than many egg farmers were following voluntarily. Such guidelines would be likely to significantly raise the cost of producing​ cage-free eggs. Suppose that the USDA begins to require these stricter guidelines. What effect will this increase in cost have on the​ long-run price of​ cage-free eggs? In the long​ run, will the quantity of​ cage-free eggs be​ larger, smaller, or the same as it would have been without the USDA adopting the​ guidelines? Briefly explain. With the stricter​ guidelines, other things​ equal, the market price of​ cage-free eggs would -- as the minimum​ long-run average cost-- At the new market​ price, the​ long-run equilibrium quantity will be

increase, increase, smaller

What is meant by allocative​ efficiency? Part 2 Allocative efficiency is when every good or service

is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it.

What conditions make a market perfectly​ competitive? Part 2 A market is perfectly competitive if

it has many buyers and many​ sellers, all of whom are selling identical​ products, with no barriers to new firms entering the market.

The late Nobel​ Prize-winning economist George Stigler once​ wrote, "the most common and most important criticism of perfect competition...​ [is] that it is​ unrealistic." ​Source: George​ Stigler, "Perfect​ Competition, Historically​ Contemplated," Journal of Political Economy​, Vol.​ 55, No.​ 1, (February​ 1957), pp.​ 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to​ entry, economists believe that the model of perfect competition is important because

it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.

Because the price of laptops falls in the long run as output​ increases, what is true about this​ industry?

it is a decreasing cost industry

When are firms likely to be price​ takers? A firm is likely to be a price taker when

it sells a product that is exactly the same as every other firm, represents a small portion of total market

If a firm decided to maximize​ revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing​ profit? The firm would produce a

larger quantity of output

The increase in total revenue that results from selling one more unit of output is

marginal revenue.

What effect will firms entering have on the market​ price? Part 5 When firms enter​,

market supply will increase​, decreasing price.

What effect will firms entering have on the market​ price? Part 5 When firms enter​,

market supply will increase​, decreasing price.

What does the shaded area in the second graph to the right represent for a perfectly competitive firm that produces at output level Q​?

negative economic profit

What determines entry and exit of firms in a perfectly competitive industry in the long​ run? Part 2 In a perfectly competitive industry in the long​ run,

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

The following questions are about​ long-run equilibrium in the market for​ cage-free eggs. ​Source: Stephanie​ Strom, "What to Make of Those​ Animal-Welfare Labels on Meat and​ Eggs," New York Times​, January​ 31, 2017. Part 2 As described in the chapter​ opener, the market for cage​-free eggs in 2015 was

not in equilibrium because farmers who were raising​ cage-free chickens were earning higher profits than farmers who raised chickens using more traditional methods.

In​ 2017, two beer drinkers in California filed a lawsuit against Kona Brewing​ Company, which sells Kona beer. The beer drinkers claimed that Kona was marketed as if it were brewed in​ Hawaii, but the beer is actually brewed in​ Oregon, Washington,​ Tennessee, and New Hampshire. ​Source: Cameron​ Miculka, "Suit Alleges Misrepresentation by Kona Brewing Co.​ Owner," westhawaiitoday.com, March​ 3, 2017. If the market for beer were perfectly​ competitive, the location of breweries would

not matter to consumers since the product would be homogeneous.

Which of the following terms best describes the result of the forces of competition driving the market price to the minimum average cost of the typical​ firm?

productive efficiency

Karl's firm illustrates

productive efficiency because price equals average total cost and allocative efficiency because marginal revenue equals marginal cost.

A shortage is the amount by which the __ exceeds the __

quantity demanded ;quantity supplied

Does the market system result in allocative​ efficiency? Part 2 In the long​ run, perfect competition

results in allocative efficiency because firms produce where price equals marginal cost.

Does the market system result in productive​ efficiency? Part 2 In the long​ run, perfect competition

results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost.

If the market price for wheat were indeed ​$5 per​ bushel, should the wheat farmer exit the industry in the long​ run? Part 5 In the long​ run, the wheat farmer

should continue to produce wheat because breaking even is as high a return as she could earn elsewhere.

What is the supply curve for a perfectly competitive firm in the short​ run? Part 2 The supply curve for a firm in a perfectly competitive market in the short run is

that​ firm's marginal cost curve for prices at or above average variable cost.

How should firms in perfectly competitive markets decide how much to​ produce? Part 2 Perfectly competitive firms should produce the quantity where

the difference between total revenue and total cost is as large as possible.

In the long run in the market for cage​-free ​eggs, we would expect

the equilbrium price to decrease and the equilibrium quantity to​ increase, as more firms enter.

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. Part 2 When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because

the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

Refer to the graphs above. Suppose the graph on the left represents a typical​ firm's supply curve in a perfectly competitive​ industry, and there are 100 identical firms in the industry. What does the graph on the right​ represent?

the market supply curve

Suppose that the laptop computer industry is perfectly competitive and that the firms that assemble laptops do not also make the displays for them. Suppose that the laptop display industry is also perfectly competitive. Suppose that because the demand for laptop displays is currently relatively​ small, firms in the laptop display industry have not been able to take advantage of all the economies of scale in laptop display production. Use this information and the graphs below to answer the following questions. What happens to the price and profit of the individual laptop produced in the short​ run?

they both rise

AXA's actions could make economic sense in the long run if​ AXA's

total cost per square foot is equal to $40 or less

In a perfectly competitive industry with increasing average​ costs, the​ long-run supply curve will be

upward sloping.

According to an article in the Wall Street Journal​, in 2007 the insurance company AXA Equitable signed a​ long-term lease on 2 million square feet of office space in a skyscraper on Sixth Avenue in Manhattan in New York City. In​ 2013, AXA decided that it only needed 1.7 million square feet of office​ space, so it subleased​ 300,000 square feet of space to several other firms. Although AXA is paying a rent of​ $88 per square foot on all 2 million square feet it is​ leasing, it is only receiving​ $40 per square foot from the firms subleasing the​ 300,000 square feet. ​Source: Molly​ Hensley-Clancy, "A Slump on Sixth​ Avenue," Wall Street Journal​, June​ 16, 2013. ​AXA's actions might make economic sense in the short run if​ AXA's

variable cost per square foot was equal to or less than​ $40.

What is meant by productive​ efficiency? Part 5 Productive efficiency is

when a good or service is produced at lowest possible cost.

Would a firm earning zero economic profit continue to​ produce, even in the long​ run? Part 2 In​ long-run competitive​ equilibrium, a firm earning zero economic profit

will continue to produce because such profit corresponds with positive accounting profit.

Assume the market for oranges is perfectly competitive. If the demand for oranges​ increases, will the market supply additional​ oranges? Part 2 If the demand for oranges​ increases, then the market

will supply additional oranges because producers seek the highest return on their investments.

The graph at right represents the situation of Karl​ Kumquats, a kumquat grower. Karl is earning

zero economic​ profit, but could have a positive accouting profit.

Suppose you decide to open a copy store. You rent store space​ (signing a​ one-year lease), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months​ later, a large chain opens a copy store two blocks away from yours. As a​ result, the revenue you receive from your copy​ store, while sufficient to cover the wages of your employees and the costs of paper and​ utilities, doesn't cover all of your rent and the interest and repayment costs on the loan you took out to purchase the copiers. Part 2 Should you continue operating your​ business?

​Yes, because you are covering your variable costs.

An article in the Wall Street Journal discusses the visual effects​ industry, which is made up of firms that provide visual effects for films and television programs. The article notes​ that: "Blockbusters... often have thousands of visual effects shots. Even dramas and comedies today can include hundreds of​ them." But the article notes that the firms producing the effects have not been very profitable. Some firms have declared​ bankruptcy, and the former general manager of one firm was quoted as​ saying: ​ "A good year for us was a​ 5% return." ​Source: Ben​ Fritz, "Visual Effects Industry Does a Disappearing​ Act," Wall Street Journal​, February​ 22, 2013. What dynamics best describe the factors at play in this​ market? Market entry for visual effect companies is relatively

​easy, so firms can expect to earn zero economic profit in the long run.


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